US elections: Volatile currency risk could impact UK SMEs

A study by World First’s Q3 2016 Global Trade Barometer [1] has found that UK SMEs who are not protected from the uncertainty of the US election may find themselves exposed to a £34.6bn currency risk.

According to the report, UK SMEs are reluctant to commit to long term currency strategies amid uncertainty around the US election and a volatile pound. Businesses are also refusing to lock in US Dollars buying rates for long periods due to the unpredictability of the election result and the potential for dollar volatility.

To add to this, the plunging pound following the UK’s vote to leave the European Union meant that Q3 saw 28 per cent of SMEs feeling the negative impact of exchange rate movements, versus 23 per cent in Q2. And a quarter (23 per cent) of businesses have said that currency volatility has impacted business investment decisions in Q3.

Between the US election and continued post-Brexit fallout, 38 per cent of UK SMEs are worried about currency volatility over the next three months.

Commenting on the effect of the upcoming election on currency volatility and the potential impact for UK SMEs, Jeremy Cook, Chief Economist at World First, said:

“The ramifications of SMEs not hedging forward the dollar for a greater period of time could be significant in the early months of 2017. As we’ve seen in the aftermath of the UK’s vote to leave the EU, many businesses who left themselves unhedged by gambling on a Remain vote were caught out by the surprise result – these businesses should take heed and make sure they don’t make the same mistake twice.

He went on to say: “Calling 2016 an eventful year politically and economically would be a bit of an understatement and SMEs have certainly felt the impact that momentous events like Brexit and an unpredictable US election have had on currency volatility. With sterling tumbling over Q3, it is unsurprising that many businesses have felt the need to alter their investment decisions.

“Nevertheless, it’s not over yet and as we head into a fraught US election which could bring up more surprises, UK SMEs need to brace themselves for a bumpy road ahead. We’ve seen the pound fall against the dollar by record amounts over the past few months, and for businesses without the right foreign exchange protection this can add a lot of pressure on margins.”

Our experts at Beavis Morgan work with SMEs across a broad range of sectors, assisting with their business plans, establishing the market for their product through research, analysing their financial requirements both now and for the future, and putting processes in place to enhance cashflow, leverage tax smart strategies, minimise risk and drive financial success and business performance.

Contact Steve Govey or your usual Beavis Morgan Partner for further information about how we can assist you and your business.

[1] To view the full report, download World First’s Global Trade Barometer here.